Solutions for high earners caught in a cashflow trap

Contrary to what you might think, for many executives their six-figure income is often a cause of cashflow problems rather than a remedy. It often comes down to the age-old issue of spending more than is earned, and that can be substantial.

However, in our experience working with executives, the real reason behind money blowouts is more likely to be time. Busy executives simply don’t have enough time to manage their personal administrative affairs.

Managing your personal cashflow along with keeping on top of other personal administrative matters, including your tax and legal affairs, is all part of a condition commonly affecting time-poor executives. (We call it ‘Executive Disorder’ and you can learn more about it here.)

Cashflow management is often given little more than a cursory thought. Mostly due to the abundance of income that enters an executive’s account each fortnight, it’s common not to have a clear understanding of the considerable outgoing of lifestyle expenses.

The absence of folding money, coupled with the ready convenience of credit cards and smart phone technology, has reduced conscious spending to tap ‘n go, meaning end of month bank statements can deliver an unwelcome and jaw-dropping surprise.

It all comes down to spending less than you earn and getting that balance right requires discipline.  However, finishing the month in the black is near impossible if you don’t know how much you have in the first place or what you’re spending it on.

Typically, to get a clear understanding of your after-tax income (cash in hand) you’d track your spending and savings over the past 12 months. This will provide a fair indication of what your expenses are each year.

But time is an issue, and in our experience it’s rare to find an executive who is keen to trawl through 12 months of bank statements, regardless of the benefit. So, you’ll be pleased to know there’s a faster, easier and better way…it’s called myprosperity.

This software is part of a very carefully curated technology stack that we as financial planners use and share with our clients. It’s a secure cashflow and budgeting smart phone app that uses 256-bit encryption to protect your private financial details.

myprosperity gathers information through feeds linked to your bank accounts and automatically categorises your transactions into different spending categories (e.g. groceries, transport, dining out and holidays). Conveniently, during the set-up process, it draws in the past three months of your money transactions to provide a complete picture of where you’ve spent your money.

With your spending habits identified, you’ll quickly be able to determine your cash position. It will be clear where you have overspent, and on what. You’ll also become aware of ‘accidental’ spending on items, such as subscriptions you no longer use.

Armed with this information, you can easily make adjustments and remedy your cashflow issues so you can change behaviours and hopefully turn things around so you can enjoy the benefits of surplus cash.

The app can help you manage your extra cash too.

By linking your accounts, you can direct surplus cash to reduce debt, save towards a goal, invest in shares or contribute to your super or other saving structures.

It’s a modern method for managing an age-old problem. Many of our clients tell us that once their cashflow is under control, they feel a sense of financial relief that their money is being used effectively. Having a clear understanding of their cash position also empowers them to confidently make financial decisions and take up opportunities that they may have otherwise passed up.

Next steps…
While making the most of this app is certainly a step in the right direction, the key is to use it as part of a properly coordinated financial management approach that’s tailored to your specific needs.  May I suggest your next step is to complete our 5-Minute Financial Health Check.

It’s a minimal time commitment for completing a series of questions that aim to establish your financial circumstances as they are now. Many of the questions are self-assessing, indicating where you can make changes yourself or where you might need additional professional help. Either way, its purpose is to provide information that can help you improve your financial outcomes, lifestyle benefits and ultimately your personal prosperity.

For more information, please contact Executive Strategies on +61 7 3007 2080 or email contact@executivestrategies.com.au

Executive Strategies is a specialised information hub for executives and senior managers who may have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that addresses the often-complex issues affecting their personal prosperity.

Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decision.

Please note: Tax advice and other services not offered under the Fortnum Private Wealth AFSL are referred to appropriately qualified professionals.

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